For an employer, one of the most important – and
unfortunately, often noticeably absent – provisions in
any written employment contract is a clause outlining what notice
or pay in lieu an employee is entitled to on termination. These
provisions are usually enormously valuable for employers, both in
knowing in advance what is necessary to terminate an employee (and
therefore minimizing the cost of expensive wrongful dismissal
litigation), and in significantly reducing the amount of notice or
pay in lieu that an employee would otherwise be entitled to under
the common law.
In order to be valid, a termination clause must be clear and
unambiguous, and must provide at least the minimum standards
outlined in applicable employment standards legislation.
Increasingly, Canadian courts have enforced such clauses, as
demonstrated by a recent case, Wernicke v. Altrom Canada
Corp.1, in which the British Columbia Supreme Court
upheld a termination provision in a senior employee's contract
that limited him to the minimum notice provisions in the B.C.
Employment Standards Act.
This case demonstrates the significant value of such clauses
when properly drafted and appropriately negotiated with the
employee. The plaintiff, Morris Wernicke, was a 43-year old
chartered accountant who had worked for the defendant company for
12 years at the time of his termination. He began his employment as
Controller and was later promoted to Chief Financial Officer and
Vice-President of Finance. In a summary trial, Mr. Wernicke argued
that the termination provisions in his employment contract were
unenforceable because they were ambiguous, and because his
employment relationship had changed so significantly that the
substratum of the contract had eroded and the defendants could not
rely on the provisions on this basis.
In making its decision, the court considered evidence that when
the plaintiff received the first draft of the employment contract
he reviewed it carefully, and understood the termination
provisions. The court noted that Mr. Wernicke was a sophisticated
individual who often prepared employment letters for other
employees with similar termination provisions. In fact, Mr.
Wernicke had negotiated several changes to other provisions in his
contract, and had obtained legal advice before signing the final
version. He also confirmed that he understood provisions in the
agreement that stated that if there was a change in his
remuneration, the balance of the letter agreement would still
apply, and that the entire agreement term meant that any changes to
the terms of his employment had to be in writing.
The court found that the termination provisions were clear and
unambiguous, and that Mr. Wernicke's own evidence was that he
understood what they meant. The court also rejected the plaintiff
's arguments concerning the effect of the changes in his
employment, noting that the contract expressly reserved the right
for the company to require Mr. Wernicke to assume new and varied
duties, and that such changes would not affect other parts of the
contract. In the court's view, the changes in his position from
Controller to Chief Financial Officer were not fundamental, but
rather, were "incremental and predictable" and reflected
the "normal evolution of a professional's job." On
this basis, the court found that Mr. Wernicke was bound by the
termination provisions and was only entitled to pay in lieu of
notice in accordance with the provisions of the B.C. Employment
Standards Act. Accordingly, his claim was dismissed.
The court's decision in Wernicke is consistent with
other recent decisions by Canadian courts that have enforced
termination clauses in situations where the provisions themselves
are clear, and where employees have been provided these contracts
prior to commencing employment, and with the opportunity to obtain
legal advice. The Wernicke decision demonstrates the
importance of ensuring that contractual language expressly provides
that the employer may change an employee's duties and
obligations during the employment relationship without these
changes affecting the remainder of the agreement.
Ultimately, the practical value of properly-drafted termination
clauses is best illustrated by the difference between the
employee's termination entitlement in this case, $18,461, and
his potential damages based on common law reasonable notice, which
could be conservatively estimated as over $260,000, based on 12
months of his compensation. Employers should always consider such
clauses in preparing employment agreements, and ensure that
standard employment agreements are kept current, and reviewed by
legal counsel whenever possible.
1. Wernicke v. Altrom Canada Corp., 2009 BCSC
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